As you know, the legislature didn’t pass a budget before they adjourned a month ago. That’s OK, because the one they were working on assumed over a billion dollars of revenue we clearly will never have. So it would have spent way beyond our current means, wiped out our state savings account, and forced a big tax increase. I’d have had to veto it, and we’d be right where we are today.

To their credit, the legislative leadership quickly came up with a good plan for starting fresh, this time with a more believable estimate of how much money we really will have to work with.

Despite the terrible national economy, Indiana remains in vastly better shape than most states, and any of our neighbors. We have over a billion dollars in reserves, and a AAA credit rating. Everywhere else, any reserves are long gone. They are slashing education by as much as 10 to 15 percent; they’re releasing convicts from prison early; and, worst of all when families are struggling, they’re raising taxes. There’s only one reason why we are so different: because we have held government spending down to the level of our income. But if we lose our sense of discipline now, in no time we’ll look just like Michigan, or Illinois, or, heaven forbid, California.

Since my first submission in January, state revenues have slipped even further, an unprecedented 8 percent below last year. When businesses don’t make profits, investors have losses not gains, and people are out of work, earning less and spending less, tax payments plummet.

It’s not pleasant, but it’s reality, so let’s deal with it. I have modified further the tight budget I proposed four months ago, and here are the major points:

Total state spending would be reduced by 2 1/2 percent. Many good ideas will just have to wait. Across state government, nothing, and I mean nothing, goes up. When your income drops by 8 percent, you can’t increase your spending, on anything.

Here’s a sample of the reductions we’re prepared to make (See attached document). Please note that we have already reduced per capita state spending substantially the last four years.

There is only one exception. Public education, as well as student financial aid, would get a significant increase. Every school would receive more per student than it did this year. And if by some happy chance, state revenues turn out better than projected, I’m proposing that one of every two extra dollars go automatically to our schools, with the rest going to our savings account. Let’s hope it happens.

These last couple years, Indiana schools have been among America’s luckiest, fully funded through the downturn while schools in other states were clobbered by massive cuts. Our goal is to keep it that way, although in times this tough no sector has a right to demand business as usual.

As always, I am ready to compromise and cooperate with the legislature, up to a point. I’m willing to see us use about a quarter of our surplus, leaving a billion dollars in reserve, but not a penny less. A billion is a lot of money, but it’s only about 26 days of state operations. If legislators want to spend more on some favorite cause, that’s fine as long as they offset it elsewhere. Add a dollar, cut a dollar. And, of course, no gimmicks, and no tax increases.

Our legislature has done a good job of helping us live within our income these last few years, while other states spent themselves into catastrophe. By working together again, we can protect services, taxpayers, and our pro-jobs business climate, positioning Indiana to lead economic recovery as it begins.

You can help. If you’re a taxpayer, ask your legislators to put the general public interest first, and say no to the special interests who demand money we just don’t have right now. When some lobbyist or legislator promises more spending on some favorite cause or project, ask him “Which of my taxes are you proposing to raise, and why do you want to do that?”

Across America, people are asking how Indiana has kept its head above water while everyone else is drowning. It’s because we’re Hoosiers, of course; we have this quaint custom of not spending money we don’t have. If we keep our common sense now, we’ll get through this very tough patch and come out ahead of other states.